Scotland ‘should have to wait 15 years for bailout’

Oil prices have fallen 25 per cent since the referendum. Picture: SWNS
Oil prices have fallen 25 per cent since the referendum. Picture: SWNS
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Scotland should have to wait up to 15 years for a Westminster bailout if it lives outwith its means, academics have advised.

MSPs must recognise decisions taken by the Scottish Parliament have real costs and that increased spending means taxes will have to go up to finance it, the academics told the Smith Commission on Scottish devolution.

They must not be allowed to rely on an immediate adjustment of the block grant if they finance their new devolved powers with unsustainable levels of spending, according to the analysis by Paul Hallwood, of the University of Connecticut, and Glasgow University academic Ronald MacDonald, a former adviser to the Better Together campaign.

If Holyrood’s decisions lead to a shrinking economy they should have to live with that for an “extended period of non-adjustment” of between 12 and 15 years, the analysis said.

The academics have backed the “hard budget constraints” proposed by the Conservatives, Liberal Democrats and the Greens.

But they dismissed Labour’s proposals as a “fudged” social programme without any clear budget constraint, and said the SNP’s plan would impose the hardest budget constraint with full fiscal responsibility but without the “welfare union” that allows resources to be pooled and shared across the UK.

The near 25 per cent fall in oil prices since the referendum “underscores why there is a need for a trade-off between a hard budget constraint and risk pooling and revenue sharing”, the analysis states.

The academics said: “Block grants from Westminster should not be elastic in the sense that if the Scottish Parliament cannot finance its chosen spending level out of the existing block grant and own-sourced taxes, the block grant is not automatically or quickly increased.

“The Holtham Commission [on funding and finance for Wales] recommended a 12 to 15-year ‘waiting period’ with respect to the Welsh Assembly and government, and the Scottish Parliament should abide by rules such as these.”

The submission concluded: “A non-elastic block grant amounts to a ‘no bailout clause’.”